Call Options Or Put Options On Yelp (YELP)?

| September 24, 2014 | 0 Comments

YELP optionsYelp (YELP) is having a rough month, although the stock is still up 4% on the year. The popular local review site tends to be a divisive stock for investors.

YELP shares are currently trading at $72.83, down 12% over the last month. The stock is trading 28% below the 52-week high of $101.75 and is 48% above the 52-week low of $49.11.

Is this an opportunity to buy call options on YELP because the company could be a buyout target? Or should you buy put options on YELP because of the negative press it’s been getting lately? 

The bulls make a convincing argument…

In terms of local review sites, there’s really no competitor who comes close to matching Yelp’s reach and audience. That’s probably why the company’s revenue grew 61% last quarter.

Moreover, at a market cap of around $5 billion, YELP is still a reasonable buyout target. There are several Internet companies who would love to have access to Yelp’s users.

In addition, most analysts predict strong growth ahead for the company. There’s plenty of reason to believe Yelp will continue its impressive growth.

But the bears have a compelling case as well… 

Despite its strong growth numbers, Yelp is trading at a sky-high valuation. In fact, the stock is valued at 180x projected earnings. That’s absurd.

More importantly, the company is coming under fire for its aggressive business practices. Restaurants are starting to revolt against Yelp’s heavy-handed sales tactics.

While the company isn’t doing anything illegal, the sales practices are alienating a lot of companies. That sort of negative press could hurt the stock price over time.

So is it time to be bullish on Yelp due to its impressive growth, or should you take a bearish position because negative press could catch up to the company?

If you think the bulls are right, take a look at buying the YELP November 85 calls for around $2.25. 

If you think the bears are right, take a look at buying the YELP November 65 puts for around $3.00.  

Yours in Profit,

Gordon Lewis

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Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.